February 23 2009 – holding Europe together

European leaders are trying to figure out how to keep a unified strategy to fend off collapse, and not have each country pursuing their own interests. [good luck on that!]  Reading Material

The NY Times (and IHT which they own) and the Wall Street Journal say the US Treasury met on Sunday with CitiGroup to discuss converting the preferred stock the US Treasury holds into common stock.  This would take “debt” off the balance sheet, but squeeze out the existing common stock holders.  No cash is generated to CitiGroup by doing this.  It only changes the financial ratios to make them look less insolvent – and removes the obligation on the preferred stock to get paid “interest” first in line.   This is rearranging the deck chairs on the Titanic.  It doesn’t change the ultimate outcome.

The US Treasury is also talking to banks (CitiGroup?) about coming up with $40 billion in Debtor in Possession funding for a GM/Chrysler Bankruptcy.  According the accounts “Everything is on the table”.   I hope the UAW is ready to embrace “change”.

NY Times Forbes Reuters

Once the US Treasury can tell banks who to lend to and for what reason (or no reason), the lessons we didn’t learn from Fannie Mae and Freddie Mac will explode.   Expect CitiGroup to be forced to loan money now to a full range of businesses which have no chance of ever making a profit – to advance a political agenda and harvest a new crop of political party donations for the party in power or pay back favors to special interest groups (like the UAW).


Trading in Hong Kong [China] is up sharply (3%+).  Japan is down slightly, as one of the major Japanese lenders filed for bankruptcy protection, and signs that Japan may not be quite as strong as people had thought.

Markets in Europe are open, up about 1-2%

Pre-market trading in futures suggest the US Stock market will open about the same as Europe – up 1 to 2%

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